Why HPQ Stock and Meg Whitman Can’t Be Stopped

by Tom Taulli | November 27, 2013 9:54 am

Why HPQ Stock and Meg Whitman Can’t Be Stopped

The turnaround at Hewlett-Packard (HPQ[1]) has continued to gain traction, as seen with the positive fiscal fourth-quarter Hewlett-Packard earnings report just released. The result? HPQ stock has gained over 8% in early trading.

In fact, CEO Meg Whitman noted that the company has ended the year on a “high note.” After all, during 2013 the return on HPQ stock has been over 90% so far.

Let’s take a look at how Meg Whitman has helped HPQ stock surprise just about everyone with a market-slaying run this year.

Hewlett-Packard Earnings – Not Perfect

The fourth-quarter Hewlett-Packard earnings performance was still not ideal. Why? Well, HPQ revenues declined by 2.8% to $29.13, which was the ninth consecutive fall. Yet it was well ahead of the $27.91 billion consensus estimate from HPQ stock analysts.

This nice surprise from Meg Whitman & Co. was probably the biggest factor driving the move in HPQ stock today.

Hewlett-Packard earnings also tallied $1.41 billion, or 73 cents a share of HPQ stock — up from a massive $6.85 billion loss in the same period a year ago. Adjusting for one-time items and restructuring charges, the Q4 gain was $1.01 per share, which beat the Street estimate by 1 cent a share.

Yes, the bottom-line beat was yet another reason for investors to believe in Meg Whitman and snatch up HPQ stock.

The outlook was also encouraging for Hewlett-Packard stock investors. The company expects adjusted profits of 82 cents to 86 cents a share for the current quarter and $3.55 to $3.75 per share for fiscal year 2014. HPQ stock analysts had a consensus of 85 cents and $3.64 per share. No doubt, the solid forecasts show that Meg Whitman has a plan that is more than just temporary.

The earnings strength was also good news since the decent 2.2% dividend on HPQ stock should be fairly safe.

What’s Next for Meg Whitman, HPQ Stock

One thing HPQ stock investors should be aware of, though, is that much of the Meg Whitman turnaround has been thanks to cost-cutting. Could this eventually go too far? Well, it certainly is a risk.

Besides, Hewlett-Packard earnings have shown weakness in all key parts of the businesses of HPQ. At the same time, the company must contend with the erosion of the PC business as consumers flock to Apple (AAPL[2]) tablets, Google (GOOG[3]) Android devices and even Amazon (AMZN[4]) Kindles. There are also other secular changes, such as 3D printing and cloud computing. If Meg Whitman does not act fast on these fronts, there will likely be pressure on HPQ stock.

However, Meg Whitman has been realistic about such changes and also realizes that the HPQ turnaround will take another few years. On top of that, Meg Whitman has lots of experience with growth businesses, as she built eBay (EBAY[5]) into a global online powerhouse.

Still, over the next year, Meg Whitman and Hewlett-Packard will need to show some results, especially on the mobile front. If she doesn’t, HPQ stock will likely suffer … and it will certainly be tough. Just look at how other companies like BlackBerry (BBRY[6]), Nokia (NOK[7]) and Microsoft (MSFT[8]) have had tremendous difficulties.

But despite this, Wall Street has growing confidence in Meg Whitman and seems willing to give HPQ stock a chance. For now, HPQ stock can’t seem to be stopped.

Tom Taulli runs the InvestorPlace blog IPO Playbook[9]. He is also the author of High-Profit IPO Strategies[10], All About Commodities[11] and All About Short Selling[12]. Follow him on Twitter at @ttaulli[13]. As of this writing, he did not hold a position in any of the aforementioned securities.